Analysis of the ‘Four-Factor Test’ in Patent Cases Post-<i>eBay</i>

Abstract

In 2006, the U.S. Supreme Court ruled in eBay Inc. v. MercExchange LLC that courts may use a “four-factor test” to determine patentee eligibility for an injunction in patent infringement cases. Lower courts have applied eBay in a random way, generally disallowing an injunction for patentees that do not commercialize their inventions. By denying patentees injunctive relief, courts have opted for a de facto compulsory license that allows only monetary damages, using a reasonable royalty calculation, to compensate the patentee.That the courts have opted to deny injunctions and then issue compulsory licenses appears to support a liability theory applied to patent law. However, Article I constitutional rights indicate an “exclusive right” in a patent for a limited time in order to promote investment in risky innovation. The case law for over two hundred years has supported the right to exclude others from using a patent; an injunction protects this right. Applying a strict interpretation of the “four-factor test” clearly breaches the exclusivity and property right in a patent, particularly when it is applied to discriminate against specific classes of patent holders, such as those – like independent inventors and university researchers – which, as market entrants, lack capital resources and which thus do not directly commercialize their inventions.The article analyzes the “four-factor test” as applied to patent cases post-eBay and identifies a broad range of contradictions in a strict interpretation of the test as applied by the lower federal district courts. The Supreme Court needs to revisit this issue to prevent inconsistencies in the application of a compulsory licensing regime that harms the precise class that needs patent rights the most.